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GiftLaw Pro Home   >  Chapter 7 - Charitable Organizations  >  7.2 Private Foundations  >  7.2.3 Minimum and Qualifying Distributions  >  Basic Quiz

Basic Quiz - 7.2.3 Minimum and Qualifying Distributions

1. Each year a private foundation is required to distribute at least 50% of its assets for charitable purposes.
           
2. Private foundations are allowed to maintain a cash reserve of up to 10% of its investment assets.
           
3. Distributions that count towards the 5% minimum distribution are known as "qualified distributions."
           
4. Private foundation "A's" distribution to private foundation "B" requires that "A" exercise expenditure responsibility in order for the distribution to qualify under the 5% minimum distribution test.
           
5. If a private foundation makes a grant to a public charity, it must follow the same procedures for "expenditure responsibility."
           
6. Sec. 74(b) of the Internal Revenue Code allows a private foundation to issue a prize or an award to the son or daughter of a selected employee of the foundation.
           
7. A private foundation may set up a donor advised fund (DAF) and make distributions that qualify for the 5% minimum to the DAF.
           
8. The failure of a private foundation to make the minimum distributions results in the imposition of an excise tax.
           
9. Should a private foundation not correct the minimum distribution amount, the IRS will impose another excise tax of 200% on the amount that ought to have been distributed.
           
10. To calculate the 5% minimum distribution amount, the fair market value for the preceding year of a foundation's investment assets, less debt incurred to acquire them, are determined and this amount is reduced by the amount of the foundation's allowable cash reserves.